Loan recast: Industries for ‘meaningful’ relief, SC mindful of govt’s constraints

Even as a clutch of industries, including the real estate sector, clung to their plea for more substantive loan relief from banks in the wake of the pandemic, the Supreme Court on Wednesday seemed to acknowledge the stand of the government, Reserve Bank of India (RBI) and banks that they were hard-pressed and would rather tread the prudent path. “The government has to arrange its affairs (on the basis of) its economic capacity,” justice Ashok Bhushan remarked, as senior advocates Kapil Sibal, appearing for realtors’ body Credai, insisted, “the government has done nothing, but has relied upon the RBI circular (on debt restructuring)”.

“Eligible borrowers’ accounts should continue to be classified as ‘standard”, Sibal said, adding that the Kamath panel was set up to regulate parameters between the borrowers and lenders, and “it has nothing to do with the Covid-19 disaster”.

The three-member bench adjourned the case to Thursday, when it will also hear the solicitor general.

Senior advocate, Ravindra Srivastava, arguing for another industry group, said it was ‘arbitrary’ on the part of the government to classify borrowers as ‘small and big”, as it extended compound interest relief for loans up to Rs 2 crore only for the six-month moratorium period. “To leave it to the banks to establish their own criteria (for relief to borrowers) is the problem. There has to be a mandate, some compulsion. It cannot be left to their (banks’) willingness only,” he said. “The argument of RBI that financial costs will be huge if more reliefs and schemes are given does not hold good,” Srivastava added.

The Indian Banks’ Association last Friday made a strong case for vacation of the Supreme Court order that restrained banks from classifying accounts as NPA. Senior counsel Harish Salve, appearing for the Association, vehemently urged the court to vacate its order of September 3 that directed banks against declaring loan accounts that were not NPAs prior to August 31, the final date of the six-month repayment moratorium.

In one of the previous hearings on the matter, the apex court had asked the RBI to respond to the power producers’ demands for various benefits, including restructuring of their loans under the recent RBI circular on debt recast. That generated an impression that, even as the Centre and RBI showed reluctance to widen the ambit of post-pandemic loan relief to borrowers and banks seemed disinclined to artificially suppress their stressed assets, the Supreme Court was still exploring if hard-hit industrial sectors could be given further succor.

“The stand of the GoI is very clear. That they are not going to do anything. For the Union government, the disaster has changed nothing,” Sibal argued on Wednesday. “The Union has not applied its mind to the data which it has access to. It has jurisdiction to deal with banks. There was no business and a moratorium was given, why did a standard account become an NPA on September 1? This is violative of Article 19(1)(g),” Sibal said.

He asked the court to take a decision on the matter, “while keeping the nitty-gritty out”. It is the obligation of the State and RBI to apprise the Court regarding the state of the industry, not doing so is dereliction of duty, Sibal contended.

Senior counsel Abhishek Manu Singhvi, appearing for Association of Power Producers, had made it clear earlier that he was not seeking liquidity injections or any fiscal or other specific relief. Singhvi had said power sector NPAs had been the result of non-payment consumers (discoms). Stating that the generating companies which are suffering the most, he said the total debt had risen to Rs 1.2 lakh crore.